Financial fraud, healthcare fraud, consumer fraud, and fraud against the government are just a few areas of continued enforcement focus for the Department of Justice heading into 2019. But at the center of it all, 2019 also has the potential to be the year of the compliance officer.
If companies take just one message from the public remarks of enforcement officials over the past year as it concerns white-collar criminal enforcement, it’s that compliance officers and in-house counsel, more than anybody else, are on the front lines of promoting ethical cultures and detecting, deterring, and remediating misconduct. That is precisely why they are looked upon by the Department as valuable partners, not adversaries.
“It is often you who will confront difficult decisions about how to respond to bad actors; what compliance, audit, and ethics programs will look like; what resources will be devoted to those programs; and the level of access that compliance personnel will have to management and the board,” John Cronan, principal deputy assistant attorney general at the Department of Justice, said in remarks at the Practising Law Institute in November.
Cronan stressed, however, that “when we at the Department talk about compliance, we are referring to effective compliance.” Specifically, in determining whether to pursue charges, prosecutors weigh many factors, including the existence and effectiveness of the company’s pre-existing compliance program, as well as the subsequent remedial actions taken, including efforts to implement an effective compliance program or improve an existing one, he said.
Criminal Division prosecutors also recognize that even the most effective compliance programs cannot prevent all bad actors from engaging in misconduct. It is in this vein—together with the fact that enforcement of the Foreign Corrupt Practices Act continues to be a high priority—that the FCPA Corporate Enforcement Policy will live on in 2019.
The linchpin of that policy: Where a company satisfies the standards of voluntary self-disclosure, full cooperation, and engages in timely and appropriate remediation—including by paying all disgorgement, forfeiture, and restitution for the misconduct—there will be a “presumption” of a declination, absent aggravating circumstances. Moreover, the Criminal Division said it will consider the policy’s criteria as “nonbinding guidance” in corporate criminal cases outside the FCPA context, including in the context of mergers and acquisitions.
The FCPA Corporate Enforcement Policy effectively gives companies clearer guidance on the benefits of self-disclosure. “It’s easier for us as defense practitioners to advise clients with respect to the potential financial punishment: You look at disgorgement and you calculate a fine, and you look at the potential reduction,” says Paul Monnin, a partner at law firm Alston & Bird. “So, really, what it comes down to is the cost-benefit analysis of self-disclosure.”
Another new policy change, announced in October, to the benefit of compliance officers and in-house counsel regards the appointment of corporate monitors. In remarks at an NYU School of Law Program on Corporate Compliance and Enforcement Conference, Assistant Attorney General Brian Benczkowski explained, “Our new policy explicitly recognizes that, ‘the imposition of a monitor will not be necessary in many corporate criminal resolutions, and the scope of any monitorship should be appropriately tailored to address the specific issues and concerns that created the need for the monitor.’”
“That should be of some comfort to companies who are considering resolutions with the Department of Justice in 2019,” says Jason Jones, a partner at law firm King & Spalding.
“That’s a very significant incentive for companies to stand up effective compliance programs, because those monitorships can be hugely expensive,” Monnin says. “And, invariably, when you have a monitor in place, there are potentially other violations that get disclosed directly to the Department of Justice.”
“With these policies, it takes a bit of time for everybody to digest them,” says Joseph Warin, a partner at law firm Gibson Dunn. “You wouldn’t expect any of these policies to have a dramatic effect already.” Next year is when you’ll start to see any real impact, if they have an impact at all, he says.
Compliance officers and in-house counsel also are on the front lines in identifying individuals responsible for misconduct. To streamline investigative efforts for both prosecutors and companies, the Department announced in November a “revised policy” governing corporate investigations in both criminal and civil cases. “Under our revised policy, pursuing individuals responsible for wrongdoing will be a top priority in every corporate investigation,” Deputy Attorney General Rod Rosenstein said in remarks at the American Conference Institute’s International Conference on the FCPA in November.
As stated in the revised policy, companies seeking cooperation credit in criminal cases must identify those who were “substantially involved in or responsible for the misconduct at issue,” regardless of their position, status, or seniority, “and provide to the Department all relevant facts relating to that misconduct.”
“[W]e now make clear that investigations should not be delayed merely to collect information about individuals whose involvement was not substantial, and who are not likely to be prosecuted,” Rosenstein said.
Practically and effectively, the policy change will not impact how investigations are conducted internally, many corporate lawyers say. “It’s a difference in form, but not in substance,” Monnin says. “We as defense practitioners, prior to November of this year, were really principally focused only on those who were substantially involved and those who are at a more senior-executive level or who were operationally in control of the fraud.”
Regarding FCPA trials, at least six individuals are scheduled to be tried in the first half of 2019. For compliance officers and in-house counsel, the message is clear: The pursuit of culpable individuals should continue to be a high priority in 2019, as it will be for prosecutors.
Compliance officers and in-house counsel can also expect to see increased coordination between and among enforcement agencies. “Many of our cases require extensive coordination with domestic and foreign law enforcement partners,” Rosenstein said.
“It is often [compliance officers] who will confront difficult decisions about how to respond to bad actors; what compliance, audit, and ethics programs will look like; what resources will be devoted to those programs; and the level of access that compliance personnel will have to management and the board.”
John Cronan, Principal Deputy Assistant Attorney General, Justice Department
At a national level, coordination efforts take the form of the newly established Task Force on Market Integrity and Consumer Fraud. The striking scope of the task force’s powers alone is significant. A presidential executive order, issued in July, mandates that the task force “provide guidance for the investigation and prosecution of cases involving fraud on the government, the financial markets, and consumers.”
The variety of federal agencies and senior Justice Department officials who sit on the task force further put a spotlight on the breadth of its enforcement powers. Such agencies include the Securities and Exchange Commission, the Consumer Financial Protection Bureau, the Federal Trade Commission, and prudential banking regulators such as the Office of the Comptroller of the Currency.
The task force’s efforts align closely with yet another new Department policy, announced in May, against “piling on” cases. “Under that new policy, Department components work jointly with other enforcement agencies with overlapping jurisdiction,” Rosenstein said. “Our goal is to enhance relationships with law enforcement partners in the United States and abroad and avoid duplicative penalties.”
The Justice Department’s coordinated efforts continue to grow more global in scale, as well. “We recently announced our first coordinated FCPA resolution with French authorities,” Rosenstein noted. “We also worked with authorities in the United Kingdom, Singapore, and Brazil.”
“For the most part, we’re going to see business as usual in 2019,” says James Koukios, a partner at Morrison & Foerster. “I think we’re going to see very similar priorities and trends, at least from an FCPA perspective.”
Other enforcement areas
FCA enforcement: Enforcement actions for the False Claims Act (FCA) also will continue. “What we’ve seen is year-over-year growth in not just dollars of recovery, but in False Claims Act new matters,” says Jacques Smith, complex litigation practice leader at Arent Fox.
In fiscal year ending Sept. 30, 2018, more than $2.8 billion in settlements and judgments was obtained from civil cases involving fraud and false claims against the government. Of that $2.8 billion, $2.5 billion involved the health care industry, including drug companies, hospitals, pharmacies, laboratories, and physicians. The Department has also started to pursue vendors that provide patient records and billing services for their role in facilitating false claims.
Beyond health care fraud, the FCA serves as the government’s primary civil remedy to redress false claims for government funds and property under government programs and contracts relating to such areas as defense and national security, food safety and inspection, federally insured loans and mortgages, agricultural subsidies, import tariffs, and more.
AML enforcement: Anti-money laundering enforcement—another cash cow for the government—will also continue to be an area of focus. The next big target for prosecutors in this area is likely to be FinTech firms. “I think they will increasingly be the subject of, at least, compliance reviews, if not enforcement investigations,” Monnin says.
All told, compliance officers and in-house counsel will increasingly be expected to play a leading role in the Department’s efforts to combat fraud in all areas and, thus, can have a significant impact on shaping enforcement efforts to their benefit in 2019 and beyond.